MAS to consult on ways to enhance investor recourse

To bolster investor confidence, maintain market integrity and uphold the reputation of Singapore’s capital markets, the Monetary Authority of Singapore (MAS) is considering additional measures to strengthen investor protection by enhancing avenues for investor recourse.

Through feedback and observations, MAS has identified that real investors here face “friction” in commencing civil action over losses suffered due to market misconduct. This includes difficulty in self-organising and finding sufficient funds for legal advice, says MAS in a July 21 announcement.

The central bank and financial regulator will put in place “appropriate safeguards” to address concerns of “frivolous” legal action that would “burden” the market. In line with the Equities Market Review Group’s guidance, MAS has identified three areas of focus and will launch public consultations later this year.

Firstly, MAS will consult on proposals to enhance existing legal provisions that enable investors to “ride on” a court action or civil penalty to seek compensation. This is intended to reduce the burden on investors when pursuing civil recourse action.

Secondly, MAS will also consult on proposals for representatives to organise and carry out legal action on behalf of investors. This is aimed at facilitating not-for-profit assistance to investors, including by organisations such as the Securities Investors Association Singapore (SIAS).

MAS will consult on the criteria for such representatives, in order to reduce the risk of “potential profiteering behaviour” and “vexatious” litigation.

Lastly, MAS will also consult on setting up a grant scheme to defray the costs of organising investors and taking legal action for cases involving market misconduct. This is to reduce cost barriers that deter investors from seeking compensation through civil action.

According to MAS, other initiatives to enhance Singapore’s equities market will also be reviewed. These include measures to uplift companies’ shareholder engagement capabilities, strengthen the value proposition and attractiveness of the Catalist board and to enhance market-making mechanisms to promote deeper liquidity and price discovery.

Besides this, measures to reduce board lot sizes to facilitate wider retail investor access, enhance efficiency of post-trade custody arrangements and develop cross-border partnerships will also be reviewed, according to MAS.

To complement the Equities Market Review Group’s measures, MAS’s Corporate Governance Advisory Committee has also begun a review of the Code of Corporate Governance to ensure high standards of corporate governance.

In a statement, Singapore Institute of Directors (SID) CEO Terence Quek says he welcomes MAS’s initiatives to strengthen the corporate governance framework. However, Quek urges the authorities to put in place “proper safeguards” to protect against the rise of an “overly-litigious environment”.

“In the United States, for example, more than 200 securities class action filings are filed annually against companies and their directors,” says Quek. “Striking the right balance between protecting investor rights and avoiding a climate of excessive legal action will be key to the success of these reforms.”

The role of directors in the shift to a more disclosure-based regime will also become increasingly important, adds Quek in his email. “They play a key role in ensuring that companies meet the regulatory requirements while protecting the best interests of the company. Equipping directors with the right skills, knowledge and networks will thus be critical. We look forward to working with the authorities and regulators to see how the corporate governance system can be further improved.”

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